I don't spend a lot of time analyzing biotech stocks. There are some extraordinarily talented people who invest regularly in this sector on this board like portefeuille and zzlangerhans. They will undoubtedly have the goods on this sector and be able to identify even better options than what I can find.

However, GILD showed up on a stock screen that I have which isolates extraordinarily undervalued stocks. Most stocks that make it on this list are errors. It's very unusual when a high-quality US stock makes it onto that list. When they do, there is usually a major macro story that immediately eliminates this stock from being considered for an investment thesis. I've spent some significant time investigating GILD. There is certainly a higher risk ratio associated with any BioTech stock. The near term investment thesis is very centered around the breakthrough drugs for Hep-C, and rightfully so. I understand that any company whose cash flow is so dependent on one product line has some substantial risk. There are competitors, but it's pretty clear that GILD has the strongest drug. The risk appears to be more than priced in. To me, it seems that the biggest problem is that the stock has lost the "sexy". Those with more experience in the sector, please feel free to correct me if you feel that I've missed something drastic.

There are a number of potential catalysts including dividend initiation, stock buybacks, Japan Hep-C approvals, proven pricing power, and some promising drugs in the pipeline across other areas of the drug portfolio.

I calculate a risk-modified fair market value between 134 and 158, which means I see the current prices as an extremely attractive entry point.

We were comparing Gilead against Google, trying to decide which would be the better performer over the next three years or so, and we decided on Gilead. It has potential for huge growth as do many pharma companies, but it's a lot safer than most as it's already large and well established. While Google is a great safe investment and no doubt will grow in the coming years, we believe you'll get more growth from Gilead.

Gilead can grow significantly from it's treatment for hepatitis while still having a strong position in the HIV marker. The forward P/E is low compared to other biotech stocks. The concern about competitive pricing for the Sovaldi and Harvoni is already priced in

Gilead has marched into Fiscal 2015 with 19 marketable products. Their top drug Sovalid generated sales of $10.283 billion in 2014. During the fourth quarter, they Sovalid generated sales of $1.732 billion up from $139 million reported during the fourth quarter of 2013, it was down from the $2.796 billion sold during the third quarter of 2014. Havoni took the lead during the fourth quarter of 2014 with sales of $2.107 billion with no corresponding sales for the fourth quarter of 2013. One number I will want to track going forward is their total HCV business. For the fourth quarter, Gilead’s HCV business generated $3.8 billion in revenue, including $3.2 billion from the U.S. The $3.8 billion in revenue represented a sequential increase of 36%.

During 2014, sales of Complera, Eviplera and Stribild exceeded $1 billion for the first time. Gilead has a strong pipeline of potential products too. One pipeline drug, GS-5745, is being studied to see if it is safe to treat patients with rheumatoid arthritis. But the antibody could also help treat other autoimmune diseases such as ulcerative colitis and chronic obstructive pulmonary disease. It could also be useful in treating pancreatic and gastric cancers.

Drugs GS-9857 and GS-5816 are being tested to see if they can be combined with Solvaldi to cut the treatment time below 8 weeks. GS-6615 is being studied to treat a genetic disorder LQT-3 syndrome, hypertropic cardiomyopathy, and ventricular tachycardia. We may see more blockbuster drugs coming to market over they years.

It isn’t all roses for Gilead – Natco Pharma is challenging the patents for Sovaldi. They want to make a generic version of the drug. Gilead has agreed to allow Natco to supply generic copies of their chronic hepatitis C medicines in 91 developing nations. Between 10% and 13% of Egypt’s population has Hepatitis C and will benefit from the agreement. The problem for Gilead is that the agreement could weaken their patent protection for all countries. It is a small chance, but possible.

Gileads Harvoni's drug will maintain a 10 to 20% growth rate worldwide for 10 years+ based on the millions that have hep c and the 5% more each year that will discover they have it.Their pipeline will continue to grow more dollars, and Gilead will probably make another acquisition in the next 2 years.

Biospharmaceuticals are only just beginning to be applied, and the companies focus on treating viral illness affecting large populations will allow it to capture new treatment areas previously inaccessable.